BSNL not renegotiating equipment price with Ericsson

NEW DELHI: Just about 40 days in the saddle and telecom minister, A Raja is already set to face the heat. BSNL's over $6 billion order to procure 45.5 million GSM lines has acquired a fresh and explosive twist, with BSNL sources denying any move to renegotiate the bid price with Ericsson.

Confirming this, Ericsson officials said, "We are waiting for BSNL to send us the advance purchase order". However, Raja's first announcement as Cabinet minister was that he wanted BSNL to renegotiate the price of its tender from the approved price of $107/line down to $90/line as this would save the exchequer Rs 1,800 crore.

This is despite the fact that the second lowest bidder, Nokia, had reportedly quoted $160/line. The BSNL tender is designed to allow 60% of the contract to the lowest bidder, and the remaining 40% to the second lowest bidder.

According to BSNL sources, the file was sent to Raja for final clearance on May 18, but is yet to be released by him.

The tendering process has already taken over two years with no sense of closure in sight. BSNL sources say a fresh tendering process will result in an irreversible decline in BSNL's status as a mobile operator, with losses of over Rs 7,000 crore, far outweighing Raja's projected Rs 1,800 crore saving.

Here's their math: If the new tender takes two years, BSNL loses 43 million subscribers, at least 12% erosion of market share and Rs 7,000 crore in revenues, considering an average loss of 1.8 million subscribers every month or Rs 300 crore in revenues/month.

The calculations are based on March and May '07 numbers, before and after capacity constraints kicked in. In March '07, when it was not constrained by capacity, BSNL added 2 million GSM lines. In May '07, it just about added 0.24 million subscribers for want of equipment.

That means every month, saturated networks claim 1.8 million subscribers. Similarly, in March 2007, BSNL had 29.2 million subscribers and a 22.36% market share, which dropped to 27.9 million subscribers and a 21.43% share in May 2007, or a loss of 1% every 2 months.

Agrees Nilotopal Basu, prominent leader of the Left parties, "point of presence is the most important parameter in the telecom business. Unless the equipment is procured quickly, the damage will be unprecedented, one that may not allow BSNL the luxury of a quick recovery".

G L Jogi, general secretary of Sanchar Nigam Executives Association points out that in May alone, Hutch Vodafone added 1.5 million new subscribers against BSNLs 0.24 million. Hutch had a total base of over 29.2 million subscribers in May '07 against BSNLs reasonably static 27.9 million. Not surprisingly, the unions threaten nationwide action unless there is immediate resolution.

BSNL (earlier DoT) is India's largest fixed-line operator with over 40 million fixed lines. However, it is quickly losing its premiere status as the second-largest GSM operator after Bharti. It now holds the third position in the GSM space after Hutch Vodafone and overall fourth position in the cellular industry behind Reliance (see chart).

BSNL's order — one of the largest global GSM tenders so far — has been jinxed from the start. However, the story took another unexpected turn when telecom minister, Dayanidhi Maran was unceremoniously removed just 40 days ago, to be replaced by A Raja, also of the DMK.

Earlier, Motorola, which was rejected on technical grounds, moved the Delhi High Court in October 2006. In April 2007, Motorola withdrew its petition, finally removing the barriers for the award of contract to Ericsson and Nokia Siemens.